The recent steady surge in the price of gold has renewed interest in an appealing asset class, particularly for those aiming to diversify their investment portfolios.

The price of the precious metal has reached 25-year highs above US$700 an ounce, and many market observers don't see any sign of a letup until it reaches $850 in the near future.

"Some experts even make a very optimistic forecast that the price will hit $1,000 an ounce by the end of this year," says Vichai Saengcharoentrakul, the vice-president of the Gold Traders' Association.

Gold was trading at $517 an ounce at the start of this year and as of last Friday it had reached $728 in New York, an increase of 41%. On the local market, the price has risen by 24.75%, from 10,100 baht per one-baht weight (15.16 grammes) in January to 12,600 baht last Thursday.

The lower rate of local price appreciation reflects the strong gains by the baht against the US dollar, from 41 baht at the start of the year to 37.6 last week.

The baht has been bolstered by inflows of foreign funds for investment in Thai stocks, but the dollar has also been under siege worldwide for a variety of reasons, which is good news for gold enthusiasts.

"The continuing depreciation of the US dollar has forced foreign investment funds to shift to gold, and those taking enough profits from rising oil prices have also placed the money in gold," says Mr Vichai. "Such increasing demand and speculation have definitely driven up gold prices."

Additionally, the fact that gold is finding renewed favour as an asset used in the reserves of many countries has contributed to the steady price gains.

Thai consumers have jumped on the bandwagon but an increasing number are now investing in gold bars rather than the usual ornamental chains and jewellery.

The returns on gold may be dazzling at the moment, but Mr Vichai advises caution. He points out that the risks are high as a result of global volatility caused by foreign funds and heavy speculation.

He believes investors should wait for the price to decline by about 10% and then enter the market _ but with prudence. "At that point there should be higher chances to make some profits."

According to Nikhil Srinivasan, chief investment officer at Allianz Asia, gold has and will remain one of the most attractive assets during the current period of uncertainty and inflation. It also holds the possibility of shooting upward in price some more. "That's because gold doesn't have a law of demand and supply like other commodities. It's more driven by sentiment," he says.

One interesting investment option for those who don't wish to hoard physical gold bars, which usually incurs some carrying costs, and those don't want to spend a lump sum purchasing a gold bar, is to invest in a gold fund.

Currently there is only one such fund on the local market, the TMB Gold Fund introduced by TMB Asset Management last December.

The fund invests in the streetTRACKS Gold Trust, a fund similar to an exchange-traded fund (ETF), which is listed on the New York' Stock Exchange.

According to TMBAM managing director Jotika Savanananda, the fund takes a passive investment approach by tracking spot gold in the New York market.

The TMB Gold Fund has produced a return of 21.56% since its inception. The initial public offering attracted investments totalling 380 million baht, but as of May 10 the size had increased to almost one billion baht. "That's because investors now tend to have more confidence in the fund," Mrs Jotika says.

However, she cautions that investors should not view the gold fund as a speculative vehicle but as a long-term investment, holding it for around two to five years. The reason is that in the face of current volatility in the gold market, only a long-term investment strategy will be able to beat the averages.

"The idea that gold prices will never fall is so untrue, because there are always chances [that they will]. The risks of investing in gold are just a bit less than the risks of investing in stocks. The more volatile the prices are, the higher the risks."

Though the price is relatively high, a fund could still be a choice for those seeking to diversify their portfolios. A gold fund also offers exposure in a roundabout way to currencies other than Thai baht.

However, investors should not use gold as their core investment asset. For most people, gold holdings making up five to 10 percent of a portfolio should be sufficient. The rest should be made up of bonds, stocks, cash and other assets. And as with any investment, one needs to honestly assess one's own appetite for risk before committing money to gold.